As an Investor, You can Earn Upto 12% Short-term Returns with Invoice Discounting

Today's investors are becoming more aware of various options and clearly understand the importance of equity markets for long-term gains. This is why they get better returns and are more satisfied with their earnings.

However, some are not convinced about the equity market and fear its volatility. They are more interested in generating maximum profit from the stock market in a short-term tenure. Investors are not attracted to the FD or Life Insurance plans because of their long duration and inflation dilemma.

This article is for those investors. The topic we will be covering is called invoice discounting. This term is related to corporations and MSMEs in two different segments.

How to operate invoice discounting?

All companies, be it multi-billion dollar corporations or small and medium enterprises, need to sell their products to buyers. Several suppliers are responsible for the assembly of the final product, and they play a major role in deciding whether the final product will succeed.

For example, when an iPhone is sold in the market, all Apple does is buy the parts from several manufacturers, assemble them, and ship them to buyers. Other manufacturers sell metal parts, glass, chargers, etc., to Apple. This is where you can understand the importance of suppliers.

When Apple gives the order of these parts to its manufacturer, they will not pay the entire amount in advance. They will offer their suppliers an invoice to ensure that the suppliers will get the full payment within 30-90 days after receiving the parts. Since the manufacturers can trust Apple, they will supply the parts.

But what if the supplier is in urgent need of money? The supplier can sell the invoice to other investors, such as financial institutions or banks. The investors will pay the amount payable by Apple to the supplier and get a discount of 20%. The production company will then pay the entire amount to the investor, receiving a profit margin.

The profits are shared

You might be wondering since the investor is the main person in this transaction, who is the second party who shares the profit? It is the bank or the financial platform. They take around 8% of the profit, and the remaining 12% is for the supplier.

The profit margin is not always 12% or 8%. The percentage varies from supplier to supplier and the company involved.

Here in India, most MSMEs run their operations with the help of discounting platforms because it helps them earn their working capital. They supply parts for corporations and earn their payment from investors.

What are the dangers associated with invoice discounting investment?

There are certain risk factors that one must remember while getting into an invoice discounting investment. The first and foremost being the investor should always analyse the company's value who will give them the final payment.

The credit history should be thoroughly checked. This will help you comprehend whether they have given the payments in the past or not. You must always look into the insolvency factor and the debt obligation.

This was for the investors. Now the company should also look into who is dealing with the invoice. Only if you feel they are reputable and trustworthy should you deal with them. Otherwise, you might deal with invoices that will not be settled in the near future.

Also, look if you have any disputed products. If you do, then the corporation can also refuse to pay you the money or only pay a small percentage. This will lead to a greater loss for the investor.

What are the best invoice discounting platforms?

Several platforms offer the best services. Some of the most reputed are KredX, TradeCred, Finovate Capital, Receivables Exchange of India Ltd (RXIL), Priority Vendor, and Flexiloans.

These are the best online and debt platforms that, as investors, you must check out. These platforms can be utilised to find the financial report, shareholders details, credit history, etc., which will help you understand the investor and the company better.

Bottom line

You can always visit us at KredX and find out the details and learn more about it by contacting our professionals for better understanding.